If your restaurant gets behind on its sales tax obligations, the New York State (NYS) Department of Taxation and Finance (DTF) can seize its assets and shut down operations. This doesn’t happen overnight. The process usually starts with various tax notices and civil penalties, followed by a tax warrant, and from there, the DTF can escalate quickly.
“Once the warrant is filed, the DTF can levy corporate bank accounts, go to the business and padlock it, or revoke the license to sell.” – Stephen B. Kass
If you own or operate a restaurant in New York and you have sales tax concerns, our restaurant sales tax attorney can help. At the Law Offices of Stephen B. Kass, we know the ins and outs of NY sales tax requirements and can help your business avoid sales tax issues and resolve those that already exist.
Key Takeaways
- Sales taxes are trust fund taxes – The New York Department of Taxation and Finance (DTF) prioritizes the collection and enforcement of trust fund taxes.
- Different ways to shut down a restaurant – The DTF can use bank levies, property seizure, license revocation, and/or padlocks to shut down a restaurant that won’t pay sales tax.
- Personal liability – The DTF can go after the personal assets of anyone responsible for unpaid sales tax. LLC or corporate status can’t protect you.
- Always file sales tax returns – The easiest way to make sales tax problems worse (and more expensive) is to not file required sales tax returns.
- Resolving unpaid sales taxes – The DTF has several resolution options, including an offer in compromise or an installment payment agreement.
Why Sales Tax Issues Are Especially Serious
Sales taxes are trust fund taxes, which means a business collects the money and holds it in trust until it can be sent to the NYS DTF. So a restaurant that doesn’t remit the sales tax to the DTF is effectively spending money that doesn’t belong to them. As a result, the DTF takes unpaid NY sales taxes very seriously and puts extra effort into collecting these tax debts.
How the NY DTF Collects Unpaid Sales Tax
If your restaurant business gets behind on its sales tax payments despite receiving multiple tax notices, the DTF will file a tax warrant. This is effectively a tax lien, which protects New York’s legal interest in collecting outstanding tax debt. The tax warrant is part of the public record and applies against both real and personal property.
After filing the tax warrant, the DTF has an array of sales tax debt enforcement tools available, including:
- A bank levy.
- Property seizure (and sale of that property).
- Personal tax assessment against people responsible for the sales tax debt.
- Suspension or revocation of a Certificate of Authority.
- Business shutdown.
How Fast Sales Tax Problems Can Escalate
The New York DTF can act more quickly when collecting outstanding sales tax balances than it does for other state taxes. It also acts faster than the IRS in many cases.
For example, when using a tax levy to take taxpayer property, the IRS typically has to first send a Notice of Intent to Levy to the taxpayer. After sending this notice, the IRS must usually wait 30 days before implementing the levy and taking the taxpayer’s property.
In contrast, the Department of Taxation and Finance doesn’t have to send a Notice of Intent before seizing property or shutting down a business for an unpaid sales tax debt. Therefore, once the DTF files a tax warrant, a levy or forced closure could be right around the corner.
What a Restaurant Shutdown Actually Looks Like in NY
The New York State Department of Taxation and Finance can shut down a restaurant in three main ways:
- License revocation
- Tax levy
- Physical closure/padlocking
If your unpaid sales tax problem stems from a willful failure to file a sales tax return or send sales tax money to New York, then the DTF can suspend or revoke your business’s Certificate of Authority. Without this license, your restaurant can’t carry out business operations in the state.
With a tax levy, the DTF could seize property necessary to carry out restaurant operations. The easiest thing for the DTF to levy will likely be business bank accounts. By freezing bank funds for an amount up to the full sales tax debt, this could potentially cripple a restaurant’s ability to pay its workers and/or buy supplies and ingredients.
Finally, there’s the DTF padlocking the restaurant’s doors so that it’s forced to close. This isn’t something the DTF wants to do, though. Not only does it require more effort to do this (someone has to physically travel to the restaurant and lock its doors), but shutting down the business means no sales. This means no sales tax is being generated. It also means the restaurant can’t earn money to pay off the sales tax debt. However, if a restaurant continues to ignore its sales tax obligations, closure is a possibility.
What Happens After the Restaurant Shutdown
It might seem like a restaurant closure is the worst thing that can happen, but the NY Department of Taxation and Finance is just getting started. After your business shuts down, the DTF starts to look for one or more responsible persons to hold liable for the unpaid sales tax.
Responsible Person Sales Tax Assessments
The DTF may go after the personal assets of anyone it deems responsible for the nonpayment of trust fund taxes, including sales tax. A “responsible person” is someone who acted willfully in the failure to pay or collect the sales tax for the restaurant.
If the DTF identifies you as a responsible person, you have 90 days to appeal the assessment. If you don’t appeal (or lose the appeal), the DTF will have all tax collection enforcement tools available to go after your personal assets.
It’s important to note that the DTF can collect the full amount of the unpaid sales tax from just you, even if there are other responsible persons. You also aren’t allowed to discharge sales tax debts in bankruptcy.
How to Prevent a Restaurant Shutdown for Unpaid Sales Tax
Restaurant sales tax issues are much easier to deal with the sooner you take action. It’s also critical to work with an attorney who has experience with both state and federal tax problems. That way, they can coordinate a resolution that positions you for success with both agencies.
If your business is short on funds, the IRS may let you set up partial payments or agree to stop collections if you qualify for financial hardship. That’s not an option with the DTF.
“New York State doesn’t have a partial pay or uncollectible status; you have to get ahead of the game early.” – Stephen B. Kass
Being proactive can mean the difference between getting into an affordable payment plan that keeps you in compliance, or watching interest and penalties grow on your account and eventually being forced to close up shop.
The Importance of Filing Sales Tax Returns
As bad as it is to not pay sales tax, the worst thing to do as a restaurant owner in New York is not filing required sales tax returns. Depending on the circumstances of business and restaurant operations, you’ll need to file these returns either monthly, quarterly, or annually.
If you don’t file a sales tax return calculating the amount of sales tax owed, New York will estimate your sales tax liability for you. The DTF uses “industry-average estimates” to lock you into a specific amount, and they’re very difficult to contest.
This is why you should still file your sales tax returns even if you don’t think you can make the full sales tax payment.
How to Resolve Unpaid Sales Tax Problems
There are several options available for resolving unpaid sales taxes, such as:
- An installment payment agreement and
- An offer in compromise (OIC)
When considering an installment payment agreement, understand that interest and penalties may continue to accrue. As for an OIC, there’s something called the “one-and-done” rule. This states that if the DTF accepts your OIC, but you default on it, you’re not allowed to apply for an OIC again.
While there are things you can do to settle sales tax matters, you need to think carefully about the costs and drawbacks of each option. This is why it’s important to consult with a tax professional before making a decision.
Don’t Let the DTF Shut Down Your Restaurant
Getting help early in the New York sales tax enforcement process can prevent major headaches, save you money, and most importantly, protect your business from closure. One of the best ways to get this help is to reach out to the Law Offices of Stephen B. Kass.
He has significant experience dealing with the New York State DTF, which means he not only knows the law but he also knows the unwritten rules and strategies for getting the best results possible for his clients. Don’t wait – consult with our restaurant sales tax attorney today.
Frequently Asked Questions (FAQ)
Does the NY DTF need a warrant to enter my restaurant?
The State must issue a tax warrant before seizing assets for unpaid taxes, but the DTF doesn’t need a search-and-seizure warrant to enter the premises for involuntary collections.
What should I do if the DTF padlocks my business?
Contact a tax attorney immediately, but make sure they’re experienced with state taxes and collection procedures. Often, an experienced attorney can get the padlocks removed very quickly, but that typically requires payment. Results vary based on case specifics.
How can the DTF shut down my restaurant if I don’t pay sales tax?
The DTF can force you to stop operations by taking away your business license or Certificate of Authority to collect sales tax. Alternatively, they may indirectly force closure by seizing business assets or freezing your account so you can’t operate.
Can the IRS shut down my business for not paying sales tax?
No, the IRS doesn’t deal with sales tax. However, if your restaurant has unpaid IRS taxes, such as corporate income tax or payroll tax, the IRS can seize your assets, which can make it very difficult or impossible to operate. The IRS can padlock businesses to seize assets, but the agency cannot rescind licenses, as those are granted on the state level.
Which taxes should I pay first to protect my business?
A tax attorney can help you come up with the most strategic repayment plan. For example, you may need to pay state sales tax first, but put federal corporate income tax on a payment plan.
Sources
– https://www.tax.ny.gov/pdf/publications/sales/pub750.pdf
– https://www.tax.ny.gov/bus/st/stidx.htm
– https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/sales_by_restaurants.htm
– https://www.tax.ny.gov/bus/st/penalties.htm
– https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/sales_and_use_tax_penalties.htm
– https://www.tax.ny.gov/pdf/current_forms/st/dtf8.pdf
– https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/do_i_need_to_register_for_sales_tax.htm
– https://www.tax.ny.gov/pdf/publications/general/pub131.pdf
– https://www.tax.ny.gov/enforcement/collections/tax-warrants.htm
